Dr Stuart Kings – NEC drafter, founder and expert – offered a deep dive into one of the most misunderstood elements of NEC contracts: risk allocation. For Contractors and Clients alike, the way risks are apportioned in NEC can have significant time, cost and programme implications. But what are the common pitfalls when it comes to risk allocation, and how can Contractors and Clients ensure best practice when it comes to getting risk right?
Understanding where risk sits in NEC contracts
NEC contracts deal with risk in two key places: Section 6, which outlines compensation events, and Section 8, which covers liabilities and insurance. Together, these sections create the framework that determines who bears responsibility when things go wrong.
While the contract attempts to allocate risks fairly, certain types of risk – like physical conditions and weather – are inherently passed to the Contractor. However, this isn’t set in stone. Parties can shift or rebalance risk through carefully drafted Z clauses or by listing additional compensation events in the contract data.
What the contract says about Client vs. Contractor risk
Client liabilities typically arise where the Client has created or contributed to the issue. For instance, if the design information provided is flawed or the Project Manager issues an instruction that proves to be illegal or impossible to follow, the Client will be liable. Other client-side risks might involve events like war, strikes or radioactive contamination – essentially, exceptional circumstances outside the control of the Contractor.
Issues can also crop up after the works have been taken over. If, for example, a faulty hinge damages a carpet in a server room post-handover, the risk rests with the Contractor. This subtle shift of responsibility underlines why it’s so important to understand the contract’s structure in detail.
Contractors, by contrast, enter the project with an expectation of carrying certain “background” risks, particularly when it comes to site conditions. But as Dr Kings explained, the NEC does allow for compensation when these conditions go beyond what could reasonably have been foreseen.
The nuances of physical conditions – clause 60.1(12)
Clause 60.1(12) deals with physical conditions, one of the most contested areas of NEC risk allocation. Contractors are expected to allow for typical ground and site conditions, using the site information provided, site visits and their own experience as benchmarks. These background risks are theirs to manage.
However, when they encounter something truly unexpected – such as ground conditions significantly worse than described – then this crosses into “extra over” territory, and the Contractor may be entitled to additional time and cost.
Dr Kings shared several real-world examples to explain the difference. If a Contractor working on a Victorian housing estate finds splayed brick foundations, it wouldn’t be a compensation event, because any experienced Contractor would expect to find them. By contrast, if an old nuclear site reveals undocumented secret tunnels or a buried fire engine contaminated with hazardous materials, these would likely qualify since they go far beyond reasonable expectations.
Clause 60.2 supports this by clarifying how compensation events should be assessed. The site information provided forms the baseline, along with what a competent Contractor would uncover through a visual inspection. Importantly, the Contractor is not expected to go digging through archives or historical drawings to spot every possibility. Instead, the Client is responsible to provide.
Where things get grey, Dr Kings recommended a pragmatic approach: bring in an expert to assess whether the condition is truly unforeseeable. Doing so helps avoid disputes and promotes collaborative working.
Weather events – clause 60.1(13)
When it comes to weather, NEC uses a clear and objective standard to determine whether a Contractor is entitled to compensation. Clause 60.1(13) requires the use of scientific, third-party data, usually from the Met Office, to prove that the weather experienced during the project was worse than a “1-in-10 year” event, this is then further enforced and cross-referenced with a further “3-in-30 year” event to provide a more holistic, accurate view.
This clause only applies if the bad weather occurs before completion and only if it actually impacts the works. Furthermore, weather is assessed on a month-by-month basis. Even if poor weather spans two months, each one must exceed the 1-in-10 threshold individually to qualify.
For example, if the Contractor faced 14 days of snow in January, although that sounds extreme, the 1-in-10 average for that area and month was 10 days – meaning only 4 days were considered “extra over.” After accounting for weekends, only 2 days’ impact was compensable.
What’s key here is that only the excess beyond the expected norm qualifies. The Contractor must prove both the severity of the weather and its direct effect on progress.
Making weather data work at tender stage
Dr Kings emphasised that weather risk is one of the most significant and often misunderstood areas of the NEC. To manage it properly, it’s crucial that the Client defines the relevant weather measurements clearly at tender stage.
Rainfall is commonly included, but other variables may be equally important. Wind speed, for example, is critical for projects involving cranes or modular construction. Excess heat might impact worker safety and productivity, especially on façades or external works. Coastal and riverside sites might need to consider wave height or flood risk. Even fog or extreme cold can pose challenges.
If the contract data doesn’t specify these factors, the risk stays with the Contractor. But if it does, the weather must still exceed the 1-in-10-year benchmark to qualify for compensation. The more accurately the contract data reflects the realities of the site and project, the better protected both parties will be.
Shifting risk through Z clauses and additional compensation events
While NEC provides a solid framework for fair risk allocation, parties can tailor it using Z clauses. These can amend existing clauses or add entirely new ones, but they must be drafted with care. One common mistake is deleting a clause like 60.1(12) without removing linked clauses like 60.3, which can leave the contract internally inconsistent.
Another example is if a Client wanted to delete the weather clause entirely. While this may seem appealing from a supply chain perspective, it increases the Contractor’s exposure and, inevitably, their price and programme contingencies.
Z clauses should be legally vetted and cross-checked using the NEC index, which shows how clauses interconnect. Even small word changes – like replacing “the Client” with “the Parties” in Clause 28.1 – can have knock-on effects, so care is essential.
In addition to Z clauses, additional compensation events can be listed in the contract data. These might include pandemic-related restrictions, discovery of asbestos or inflation clauses tied to material prices. Again, clarity is vital to avoid overlapping with existing provisions.
Notably, the Early Warning Register is not a risk allocation tool. It’s a management mechanism for known risks post-signature, but it does not determine who carries which risks under the contract.
Supporting risk management with technology
Platforms like Sypro’s contract management system help project teams keep risk and compensation events under control. The dashboard includes all 21 standard NEC4 compensation events (unless amended) and can record additional ones too.
Each risk can be assigned a score based on probability and impact, enabling teams to prioritise effectively. The system also tracks conversations and actions with full audit trails – making it easier to manage early warnings, document decisions and stay ahead of potential disputes.
Getting risk allocation right under NEC requires more than just reading the clauses. It demands a deep understanding of how the contract works in practice, where liability naturally sits, and how to draft amendments carefully and consistently.
Whether you’re a client looking to protect against cost overruns, or a Contractor trying to avoid being burdened with unfair liabilities, the message is the same: clarity at contract stage is key. And when in doubt, refer to the NEC guidance volumes – especially Volumes 2 and 4 – for practical support on completing contract data and drafting Z clauses that stand up under scrutiny.
With NEC4 now widely adopted and the construction landscape ever more complex, taking the time to understand and properly allocate risk isn’t just good practice, it’s essential. Watch our webinar with Dr Stuart Kings in full here or request a demo for Sypro now.
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